How Lavazza turned coffee into gold
"I won’t have coffee,” Giuseppe Lavazza says politely. It’s soon clear why: the black stuff on offer is not the brand his family has spent 120 years building. “Just water,” he says.
The story behind Lavazza, now Italy’s best-selling coffee brand, began in 1895 when Guiseppe’s great grandfather Luigi, “a peasant”, found himself down on his luck after two years of bad harvests.
The enterprising young man managed to turn his luck around, borrowing 50 lira – the equivalent of a few pounds today – and moving to nearby Turin, where he became a shop assistant. The next 20 minutes, a romp of a tale about how Luigi managed to eventually set himself up as the boss of a grocery shop in downtown Turin, has nothing to do with coffee, however.
“Ah, but he had a laboratory at the back of the shop and was doing night classes in chemistry,” Lavazza says. Guiseppe, 51, is the fourth generation of the Lavazza family to head up the company.
He is wearing an immaculately cut grey suit and a blue shirt, but has opted for an embroidered collar, which makes him look a little bit like a corporate cowboy. He shakes hands four times, and offers two kisses to boot.
In Monaco representing Italy in the World Entrepreneur of Year awards, Lavazza is up against entrepreneurs from 50 other countries, including UK entry Richard Steeves, the boss of sterilisation giant Synergy. It emerges that a knack for mixing lotions and potions are what made his ancestor a great coffee entrepreneur.
“He got interested in coffee in about 1910 and began blending different coffees,” Lavazza reveals. “He introduced the concept of blended coffee and that made him stand out from competitors, who were just selling it straight from Brazil.”
Each successive generation has contributed to building the €1.4bn-turnover company that Lavazza is today. This early innovation helped establish Lavazza as one of the biggest coffee companies in Italy and later the world. The scientifically minded Luigi worked out how to replicate blends in order to ensure repeat custom.
Then, when the first automatic roasting machine was invented in the early 1920s, he bought one of the first to roll off the line. Until the Second World War, Luigi was still very much in the grocery business with coffee as a lucrative sideline, but afterwards, his two sons decided to make it their sole focus. Each successive generation has contributed to building the €1.4bn-turnover company that Lavazza is today.
Luigi’s sons, Mario and Giuseppe – or Beppe – first began packaging the coffee in branded Lavazza boxes in the Fifties. Previously, coffee was just a commodity, and shoppers would take scoops from unmarked sacks in their local shops. But the pair were inspired by the food donations from the US after the war, and decided to make Lavazza a brand, not just a supplier. This was essential to their plans to export internationally.
Their tentative sales across Europe have now become a truly international business, with 90 markets around the world representing about half of sales. Lavazza is now the oldest of the current generation at the firm, serving as vice-chairman, and he too is spear-heading change.
Under his leadership the company has become fiercely acquisitive, snapping up Carte Noire, the biggest coffee brand in France – “It has 20pc market share there” – and Denmark’s Merrild over the past year. More deals are afoot, as the company is looking to pick up more prominent international brands, and to become market leader in at least four markets over the next year.
“We have €1bn to spend on the development of the company,” he says. Territories on the hitlist are the US, UK, Germany, Canada, Australia, and “places in eastern Europe”. China is off the table. “The coffee tastes inChina are the issue,” says Lavazza. “They don’t like bitterness and want sweet things.”
We are not worried – Starbucks is welcome in Italy. We are not in competition. It’s a completely different proposition to us
Lavazza is looking outwards at the same time as rivals are challenging his dominance in Italy. Starbucks will open its first coffee shop there next year, but Lavazza is dismissive. “We are not worried – Starbucks is welcome in Italy,” he says. “We are not in competition. It’s a completely different proposition to us.” Lavazza is not, after all, in the coffee shop business.
A tentative foray into franchised outlets under the Expression brand fizzled out back in 2013, and the family has no intention of trying again. “We do partner with certain brands in exceptional circumstances,” says Lavazza, referring to the partnership with Eataly, the Italian food business.
He’s also signed a deal with Sir Stelios Haji-Ioannou to provide coffee for the easyJet founder’s easyCoffee chain of new cafes, which has opened its first branches in West London. The UK is a major focus for the Lavazza brand over the next year, where there’s ample opportunity for selling into offices, cafes and vending machines.
The company generated £50m in revenue from Britain last year and that will rise to £60m this year. Lavazza says that sales growth over the past five years has been “spectacular” in the UK. “We’ve always had double-digit growth,” he claims.
The coffee giant is expecting its latest product – an instant coffee called Prontissimo – to help drive up sales. One in five Britons still drinks instant coffee more than once a day, according to Mintel – well above the rate elsewhere in Europe. Nevertheless, instant coffee is an unusual tack for such a traditional company. “Listen to me, it was screened by the family,” Lavazza says.
“This is no ordinary instant. The family has final say over whether to launch a product. The board has final say over the business plan, but we do the tasting, and I can say we are very proud of Prontissimo.” It is already served on flights from London to Rome by Alitalia, he adds. “The crew recently told me it was beautiful.”
The threat of Brexit is a worry, however. “If the UK leaves the EU, it could create possible danger,” he says. “It’s a big risk and I don’t like risk.” The coffee business is already beset with challenges. Commodity prices are volatile and there’s no way to predict how the weather will affect future harvests.
“Raw materials can impact profit and loss by up to 30pc,” Lavazza says. The company almost went out of business in the 1970s when the worst frost in recorded history killed off most of Brazil’s coffee plants. It took six years and some very favourable terms from the Brazilian coffee farmers for the firm to return to the black. Could it happen again? “If I could see the future, I’d have another kind of job,” he says.
The ongoing economic instability in the eurozone is also a threat to growth plans, but Lavazza is sanguine. “We are very familiar with Italian crises… There’s always been a crisis.” The current issues with Italian banks are causing domestic customers to cut back on expensive goods – another reason to build up overseas sales as quickly as possible. “We want 70pc of revenues to come from international sales,” he says.
“We want to stay an Italian company but to diminish risk.” Amid consolidation elsewhere in the industry, there is the sense that Lavazza is fighting for its future. The brand already serves 20bn cups of coffee a year, but Giuseppe’s ambitions are many times that number.
“It is no longer sufficient just to be present internationally,” he says. “You need to be relevant. If you can’t do it on your own, then you need to buy someone who can.”
by Rebecca Burn-Callander